1. Oman College of Management and Technology Course 403308 – EC Topic 6 Online Retail and Services CS/MIS Department

2.  Mobile commerce nearly doubles  Rapid growth in social commerce  Online retail still the fastest growing retail channel  Buying online a normal, mainstream experience  Selection of goods increases, includes luxury goods  Informational shopping for big-ticket items expands  Specialty retail sites show rapid growth  Integration of multiple retailing channels

3.  Most important theme in online retailing is effort to integrate online and offline operations  $16 trillion U.S. economy  U.S. retail market ◦ $11.4 trillion ◦ 71% of total gross domestic product (GDP)

4.  7 segments (clothing, durable goods, etc.) ◦ For each, uses of Internet may differ  Information vs. direct purchasing  General merchandisers vs. specialty retailers  Mail order/telephone order (MOTO) sector most similar to online retail sector ◦ Sophisticated order entry, delivery, inventory control systems

5. Figure 6.1 SOURCE: Based on data from U.S. Census Bureau, 2012.

6. ◦ Reduced search and transaction costs; customers able to find lowest prices ◦ Lowered market entry costs, lower operating costs, higher efficiency ◦ Traditional physical store merchants forced out of business ◦ Some industries would be disintermediated  Few of these assumptions were correct— structure of retail marketplace has not been revolutionized  Internet has created new venues for multi- channel firms and supported a few pure-play merchants

7.  Smallest segment of retail industry (5– 6%)  Growing at faster rate than offline segments  Revenues have resumed growth  Around 73% of Internet users bought online in 2013  Primary beneficiaries: ◦ Established offline retailers with online presence (e.g., Staples) ◦ First mover dot-com companies (e.g., Amazon)

8. Figure 6.2 SOURCES: Based on data from eMarketer, Inc.,.

9.  Integrating Web operations with traditional physical store operations ◦ Provide integrated shopping experience ◦ Leverage value of physical store  Types of integration ◦ Online order, in-store pickup ◦ Web promotions to drive customers to stores ◦ Gift cards usable in any channel  Increasing importance of mobile devices, social commerce, and tablets

10.  Economic viability: ◦ Ability of firms to survive as profitable business firms during specified period (i.e., 1–3 years)  Two business analysis approaches: ◦ Strategic analysis  Focuses on both industry as a whole and firm itself ◦ Financial analysis  How firm is performing

11.  Key industry strategic factors ◦ Barriers to entry ◦ Power of suppliers ◦ Power of customers ◦ Existence of substitute products ◦ Industry value chain ◦ Nature of intra-industry competition  Firm-specific factors ◦ Firm value chain ◦ Core competencies ◦ Synergies ◦ Technology ◦ Social and legal challenges

12.  Statements of Operations ◦ Revenues ◦ Cost of sales ◦ Gross margin ◦ Operating expenses ◦ Operating margin ◦ Net margin  Pro forma earnings—EBITDA  Balance sheet ◦ Assets, current assets ◦ Liabilities, current liabilities, long-term debt ◦ Working capital

13.  Virtual merchant ◦ Amazon  Bricks-and-clicks ◦ Walmart, JCPenney, Sears  Catalog merchant ◦ Lands’ End, L.L. Bean, Victoria’s Secret  Manufacturer-direct ◦ Apple, Dell, Sony

14.  Vision: ◦ Earth’s biggest selection, most customer-centric  Business model: ◦ Retail, Third-Party Merchants, and Amazon Web Services (merchant and developer services)  Financial analysis: ◦ Continued explosive revenue growth, profitable  Strategic analysis/business strategy: ◦ Maximize sales volume, lower costs and cut prices, acquisitions, mobile shopping, Kindle  Strategic analysis/competition: ◦ Online and offline general merchandisers, Web services

15.  Strategic analysis/technology: ◦ Largest, most sophisticated collection of online retailing technologies available  Strategic analysis/social, legal: ◦ Sales tax, patent lawsuits  Future prospects: ◦ In 2013, Amazon registered more than $31 billion in sales, compared to $26 billion in 2012 for same period ◦ Increased spending on new technology initiatives  Smartphone and Kindle TV set-top box  Video content  New product categories and territories

16.  Online retail fastest growing channel on revenue basis  Profits for startup ventures have been difficult to achieve  Disintermediation has not occurred  Established merchants need to create integrated shopping experience to succeed online  Growth of online specialty merchants ( e.g., Blue Nile)  Extraordinary growth of social, local, and mobile e-commerce

17.  Service sector: ◦ Largest and most rapidly expanding part of economies of advanced industrial nations ◦ Concerned with performing tasks in and around households, business firms, and institutions  Includes doctors, lawyers, accountants, business consultants, and so on ◦ Employs 4 out of 5 U.S. workers ◦ 75% of economic activity

18.  Major service industry groups: ◦ Finance ◦ Insurance ◦ Real estate ◦ Travel ◦ Professional services—legal, accounting ◦ Business services—consulting, advertising, marketing, and so on ◦ Health services ◦ Educational services

19.  Two categories ◦ Transaction brokers ◦ Hands-on service providers  Features: ◦ Knowledge- and information-intense  Makes them uniquely suited to e-commerce applications ◦ Personalization and customization  Level differs depending on type of service

20.  E-commerce has transformed banking and financial services ◦ Major institutions deploy online services  Online financial consumer behavior ◦ Most online consumers use financial services sites  Check balances  Pay bills ◦ Experienced users move on to more complex financial services ◦ Number of people using mobile devices for financial services is surging

21.  Online banking pioneered by NetBank and Wingspan; no longer in existence  Established brand-name national banks have taken substantial lead in market share  Two-thirds of U.S. Internet users use online banking  Early innovators in online brokerage (E*Trade) have been displaced by established brokerages (Fidelity, Schwab)

22.  Online consumers prefer multi- channel firms with physical presence  Multi-channel firms ◦ Growing faster than pure online firms ◦ Lower online customer acquisition costs  Pure online firms ◦ Cannot provide all services that require face-to- face interaction

23.  Financial portals ◦ Comparison shopping services, independent financial advice, financial planning ◦ Revenues from advertising, referrals, subscriptions ◦ Example: Yahoo! Finance, Quicken.com, MSN Money  Account aggregation ◦ Pulls together all of a customer’s financial data at a personalized Web site ◦ Privacy concerns: control of personal data, security, and so on ◦ Example: Yodlee Sli de 9- 23

24.  Early entrants hoped to simplify and speed up mortgage value chain  Three kinds of online mortgage vendor today ◦ Established online banks, brokerages, and lending organizations ◦ Traditional mortgage vendors ◦ Pure online mortgage firms  Online mortgage industry has not transformed process of obtaining mortgage ◦ Complexity of process

25.  Online term life insurance: ◦ One of few online insurance with lowered search costs, increased price comparison, lower prices ◦ Commodity  Most insurance not purchased online  Online industry geared more toward ◦ Product information, search ◦ Price discovery ◦ Online quotes ◦ Influencing the offline purchasing decision

26.  Early vision: Disintermediation of a complex industry  However, major impact is influencing of purchases offline ◦ Impossible to complete property transaction online ◦ Main services are online property listings, loan calculators, research and reference material, with mobile apps increasing  Despite revolution in available information, there has not been a revolution in the industry value chain

27.  One of the most successful B2C e- commerce segments ◦ More travel is booked online than offline ◦ Online travel services revenues in 2013: $137 billion  For consumers: More convenience than traditional travel agents  For suppliers: A singular, focused customer pool that can be efficiently reached through onsite advertising

28.  Travel an ideal service/product for Internet ◦ Information-intensive product ◦ Electronic product—travel arrangements can be accomplished for the most part online ◦ Does not require inventory ◦ Does not require physical offices with multiple employees ◦ Suppliers are always looking for customers to fill excess capacity ◦ Does not require an expensive multi-channel presence

29. Figure 6.3 SOURCE: Based on data from eMarketer, Inc., 2013d.

30.  Four major sectors: ◦ Airline tickets  Greatest source of revenue  Two-thirds of all online travel spending ◦ Hotel reservations  19% of travel spending in 2013 ◦ Car rentals  9% of travel spending in 2013 ◦ Travel packages  2% of travel spending in 2013  Corporate online-booking solutions (COBS)

31.  Intense competition among online providers  Price competition difficult  Industry consolidation  Industry impacted by meta-search engines ◦ Commoditize online travel  Mobile applications are also transforming industry  Social media content, reviews have an increasing influence on travel purchases

32.  Top sites generate more than $1 billion annually  Two main players: CareerBuilder, Monster  Traditional recruitment tools: ◦ Classified, print ads, career expos, on-campus recruitment, staffing firms, internal referral programs  Online recruiting ◦ More efficient, cost-effective, reduces total time-to-hire ◦ Enables job hunters to more easily distribute resumes while conducting job searches ◦ Ideally suited for Web due to information-intense nature of process

33.  Recruitment ideally suited for the Web ◦ Information-intense process ◦ Initial match-up doesn’t require much personalization  Saves time and money for both job hunters and employers  One of most important functions: ◦ Ability to establish market prices and terms (online national marketplace)

34.  Consolidation  Diversification: Niche employment sites  Localization: ◦ Local vs. national, Craigslist  Job search engines/aggregators: ◦ “Scraping” listings  Social networking: ◦ LinkedIn; Facebook apps  Mobile Web sites and apps